ZEE TELEFILMS
Back in Business
It has taken six years. But the first man of Indian television is
finally in action again.
Vanita Kohli-Khandekar
http://www.businessworld.in/issue/coverstory01.asp
Just six years ago, India's largest listed media company was a bundle
of misery. Ever since its inception in 1992, we have been tracking the
fortunes of Zee Telefilms, but never had we seen it hit a lower point
than it did in 2000. It had lost four CEOs, its television business
was a mess, its cable operation was stagnant. The media empire that
chairman Subhash Chandra built had acquired the reputation of being a
'management hotspot', a political, insecure kind of place where no one
of ability wanted to work. First Sony, then Star attacked it and took
away its leadership position in broadcasting. Its share price crashed,
wiping out billions in market capitalisation (see 'Planning A
Comeback', BW, 4 December 2000). In the subsequent years, the first
Hindi satellite broadcaster just could not get its act together. It
ran through three more CEOs, its programming sank lower and Siti Cable
continued to languish. Even India's first DTH (direct-to-home)
service, which it launched in 2003, was largely ignored. Real DTH,
everyone said, would begin when Star joined the fray. A trip to meet
someone at Zee was usually a sad experience. The moment you walked
into the closed, claustrophobic office, you knew you were meeting a
team of well-meaning people who did not seem to be getting anywhere.
Walk into the Zee Telefilms office at Worli in Mumbai today. There is
an airy, light feeling, as if the windows have been opened after many
years. The same people we have met over six years are an excited lot.
The place is bursting with positive energy as everything —
broadcasting, cable, DTH, sports, regional languages and every other
business — falls into place. At Rs 1,423-crore, Zee Telefilms looks
and behaves like India's largest listed media company. "It is like
somebody has put incense oil and lit a flame below. The company feels
and smells good," laughs Irshwin N. Balwani, business head, Zee Muzic.
It sure does. On the back of shows such as Saat Phere and Kasamh Se,
ratings are up and yields per 10 seconds have doubled. This has lifted
advertising revenue growth to 43 per cent, up from 10 per cent in the
previous financial year, according to estimates by Hong Kong-based
consulting firm Media Partners Asia. From No. 3 in the Hindi general
entertainment stakes, Zee TV is now a clear No. 2, ahead of Sony.
Between 8 p.m. and 10 p.m., Indian prime time, it battles Star Plus
rating point for rating point. "They (Star) have had a six-year
dominance. We sure as hell will try to break that," says Punit Goenka,
director (and Chandra's son). "We don't want to remain No. 2 for too
long," echoes Pradeep Guha, CEO.
This aggressive feeling is not limited to broadcasting. There have
been a string of acquisitions, joint ventures and deals — UNI, Ten
Sports, RPG Netcom and Diligent Media Corporation (the joint venture
with Dainik Bhaskar that prints DNA) — among others. Alliances such as
the one with Ten Sports will have an immediate impact on topline.
Chandra is now breaking his company into four parts to build a bigger,
stronger 'sum of parts'. The demerger of Zee Telefilms, which will be
operational soon, will create four separately listed companies: Zee
Telefilms (broadcasting and international), Wire and Wireless India
(WWIL, cable), Dish TV (DTH) and Zee News (ZNL, news and regional
channels). Each will be raising capital for growth. The total capital
being raised over the next five years — about Rs 1,500 crore. And
their joint revenue target — Rs 12,000 crore by 2011 (more on this
later).
In November came the seal of approval from the stockmarkets — Zee's
market capitalisation finally hit the same figure that analysts at
Merrill Lynch, New York, had attached to Star India in October 2005 —
$3 billion. Chandra's company, it seems, has finally got its act
together. What happened? "The only visible thing that has changed is
that our flagship channel has revived," says Rajiv Garg, CEO
(corporate strategy and finance), Essel Group (Zee's parent).
Its rub-off effect is being used to break up the company and raise
capital to fix the subscription-driven businesses. Notice that all the
big investments from now on — about Rs 1,500 crore in all — will
happen in pay TV systems such as cable and DTH. There is no major
capex planned for the content businesses.
The ability to sustain this success and to leverage it to become a
bigger company will, however, need a management depth and maturity
that Zee has for long been accused of lacking. So, have Chandra and
Zee indeed matured enough to take that big leap? "Contrary to
expectations and in spite of whatever I had heard [before joining
Zee], Mr Chandra did not interfere [with whatever changes he made at
Zee]," says Guha. Coming from a man who has just completed two years
at a company notorious for losing CEOs within a year, is that sign
that the turnaround is not a flash in the pan?
What's Working
Chandra maintains that Zee's "strategy was never wrong, only execution
was poor. There were no systems and processes, everything was
individual driven. When the channel and company were doing well, many
things were wrong but no one noticed". To fix that, he got Guha,
former president of Bennett, Coleman & Company (BCCL), and Goenka to
join the Zee TV team in January 2005. The putting in place of systems
and processes is the first of two changes that the duo made.
Earlier each channel operated in a silo with its own revenues and
costs. Now, however, the 23 domestic channels operate as a network.
Take Zee Cinema. It had been a star in the Zee portfolio for over
three years (it brings in the largest share of profits after Zee TV).
Much of its strengths came from its understanding of movie-watching
behaviour. Bharat Kumar Ranga, executive vice-president in charge of
Zee Cinema (among other channels) points out that most viewers watch
an average 20-22 minutes of a film. Contrary to popular perception,
they prefer breaks. "Consumer behaviour at home is different from the
theatre," he says. That is because India remains, largely, a one-TV
market. Films are watched along with other people. "Even in two- and
three-TV homes, the atmosphere is of a one-TV home," says Ranga.
Nuggets like these were never utilised by the network. But now this
understanding of movie-watching behaviour has meant that the Zee
Cinema team does the film programming for Zee TV and the entire
network.
The second change is more subtle. Neil Chakravarti was an investment
banker with JP Morgan in London when Guha and Goenka bumped into him a
couple of years ago. Guha offered him a job on the spur of the moment
and Chakravarti accepted. This non-TRP man is now vice-president in
charge of English channels Zee Café, Zee Trendz and Zee Studio. These
channels are extremely difficult to push in a mass-entertainment
driven cable scenario. The idea is to keep building them till pay TV
systems take off. Even three years ago, Zee would not have committed
resources and people like Chakravarti to building the business.
"Earlier, it was a very cost-centric approach, now it is an
investment-centric one," says a senior manager. Earlier this year, the
entire creative team was taken on a film appreciation course to FTII.
"This has never been done before," says Sanghamitra Ghosh, executive
vice-president (HR), who has been around for over five years.
This focus on investing in people, programming and businesses comes
with more questioning. For instance, the key result areas (KRAs) of
most programming people are now linked to TRPs. There is a calendar of
meetings for senior people devised by The Hay Group (an HR
consultancy). They have to meet every few weeks irrespective of which
part of the world they come from. This adherence to processes and
systems has been Star's biggest strength, whose executive committee
meets with Hong Kong every Monday. The team from Hong Kong comes to
India every month and so the system goes. Because the top guys are
always in touch with each other, coordination and communication is
much better, so are responses to competitive situations.
"I think the biggest change has been stability," says Goenka, who
seems very much his own man. "The company had seen four different
heads in quick succession. Performance was affected because people did
not want to take decisions." Now, "there is a lot of positive energy,
every success is celebrated", says Nitin Vaidya, executive
vice-president, Zee Regional Channels. For example, if Zee Marathi
wins an award, a mail is sent out to everybody from the chairman. The
result is a culture that encourages people to think and voice ideas
and systems that ensure that these ideas do not get lost. "There is an
openness that Guha and Goenka showed. They clearly want people who can
think out of the box," says Chakravarti. Attrition, a huge problem at
Zee, is showing some signs of slowing down. From 36 per cent in
2004-05, it has come down to 24 per cent in 2005-06. Ghosh expects it
to steady at 12 per cent in the next financial year.
Breaking Up To Build
These changes are being dovetailed into some of the tougher ones.
These are the steady raising of ad rates, the launching of several new
international (such as Zee Arabiya) and Indian channels (such as Zee
Tamil), and the investment in sports. The biggest bets, however, are
on what the demerger could do. The first restructuring discussion
happened in 2005, says Garg. The idea was to free all the other
businesses from the vagaries of the broadcasting one. Cable, DTH, news
and regional channels, and broadcasting all have different regulations
and foreign investment norms. "It was evident that the content
business would drag down the other ones such as Siti Cable (WWIL),"
says Goenka. Now, if WWIL wants to raise money, a couple of rating
point drops in Zee TV will not affect its valuation.
If the demerger works, it opens the floodgates for subscription
revenues, the biggest potential upside in the Rs 20,000 crore-odd
television broadcasting business. These have so far been the weakest
link in the chain for all broadcasters including Zee. Of the Rs 12,000
crore-odd collected on the ground from 71 million cable homes in
India, just about 15-20 per cent comes back to broadcasters against 50
per cent in more robust pay TV markets (this does not include DTH
revenues). Though they want a slice of the market, foreign investors
have been chary of the unorganised and fragmented nature of the
business. So, in spite of being allowed to own 49 per cent in a cable
company, most have stayed away. Nor have broadcasters and cable
companies found it worth their while to invest in installing digital
set-top boxes, which would bring addressability and, therefore, more
pay revenues (see 'Choked', BW, 16 May 2005).
Today, "there is a powerful pull from the ground forcing us to do
digitisation", says Jagjit Singh Kohli, CEO, WWIL. DTH and the threat
of IPTV have put cable networks in a state of panic. Their networks
are already broadband-enabled. Kohli points out that several broadband
operators (Sify, Tata, Reliance) use the cable pipes combined with
Ethernet to ride into homes. WWIL is using this state of physical and
mental readiness among last-mile operators to gain control over homes
directly. It has acquired, at roughly Rs 1,500-Rs 2,000 per home,
controlling stakes in seven non-metro MSOs, who have access to 250,000
subscribers. The target is to control, directly or through
franchisees, 9.6 million STB-enabled homes by 2011. The cost: Rs 830
crore as of now. And the targeted revenues: Rs 3,770 crore. Even if
WWIL acquires 7-8 million direct subscribers, its ability to command a
valuation of $100-$200 per subscriber from a foreign investor goes up,
reckons Dinyar Contractor, editor, Satellite & Cable TV magazine.
Remember, everyone from John Malone's Liberty Media to Time-Warner
have their eye on this market. At a minimum of $100, even a 20 per
cent sale of stake in a network with 10 million homes could bring in
about Rs 1,000 crore.
Now factor in the impact of rising pay TV numbers, either through DTH,
HITS (Headend in the sky) or cable, on the content business. Control
over the last mile means a better share of revenues and the ability to
price channels such as Zee Café differentially (though regulation does
not permit that yet). "We have not even scratched the surface on
subscriptions," says Guha. Agrees Arun Poddar, CEO, Zee-Turner: "Three
years down the line, people will forget the last 10 years of
broadcasting. Subscription will become the mainstay."
The Chandra Factor
Even Chandra's worst critics admit that he is a visionary par
excellence. The plan is just proof of that. He spots businesses and
bets on them long before his bigger rivals. Unlike Star or Sony, Zee
has a robust regional and international broadcasting business. If you
take Fun Republic (into multiplexes) and DNA into account, Chandra
owns, along with Kalanithi Maran's Sun TV, one of the best portfolios
of media assets in India. But the execution is not always as good as
the vision. "When I look at some of the (research) papers from 1993, I
feel strongly that we were headed in the right direction, but didn't
carry our decisions through well," says Chandra. For instance, Zee did
the first experiments with a Bangla language programme in 1992. "We
should have launched a Bangla channel by 1994, but the CEO then did
not," says Chandra. Ditto for Tamil. "We made a mistake in the hiring
of CEOs. That cost the company a lot in terms of perception. Things
settled down once Goyal [Sandeep Goyal, the CEO just before Guha] was
asked to leave," goes on Chandra. (When contacted by BW, Goyal
declined to comment.)
The results, especially on the flagship channel, are proof that
Chandra is letting his CEOs be. It explains why the same team, most of
who have done an average of 7-9 years at Zee, has performed. "I had a
far more dismal picture of Zee from the outside than when I came in. I
found the people to be very good. I have hardly hired any new people,"
points out Guha. Chandra still wields tight control, though. He also
has a reputation for not liking it if the CEOs become the stars.
Almost every former CEO has said that to us. At a meeting of top
managers a couple of weeks ago, several requested him to decentralise
decision-making some more. Says the head of one business: "Even today,
any decision I make has to go through him. Everything is going right
for the company, but it has to get out of the ownership trap." Chandra
denies that he is very hands on, now. "If I notice something I do
inform them. It is up to them to take action," he says.
You could argue, of course, that some of the best media companies in
the world are driven by owners — Sumner Redstone's Viacom or Rupert
Murdoch's News Corporation, for example. "It is a good blend of owner
and professional management that works," says Jawahar Goel, business
head, Dish TV and Chandra's brother. If Guha's job was to put systems
and processes in place, he has done that. Now it is up to the chairman
to respect them at an operational level. That is what a Murdoch or a
Redstone does. So maybe all that was needed — the right balance of
Chandra and a professional CEO — is already there.
The risks are evident — a five-point drop in ratings or a 20 per cent
one in share price could easily derail the transformation process if
it is not yet part of the company DNA. Also, remember that Zee has
surged ahead in a year when both its competitors had their eye off the
ball. The internal politicking at Star (see 'Beyond Broadcasting', BW,
8 May 2006) and Sony's problems with its investors made things easier
for Zee. But as Vivek Couto, executive director, Media Partners Asia,
points out, "You can hit an 800-pound gorilla (Star), but you haven't
yet felt the 800-pound gorilla hitting back." The other risks: "CAS
might not take off, DTH may not become as big as estimated," rattles
off Couto.
The Goenka Factor
The biggest risk, however, is in the question floating within and
outside Zee these days. Who is responsible for the turnaround, Guha or
Goenka? It typifies Zee's paradoxical existence as an owner-driven,
professionally run company. "It is no credit to any one person. It is
to the credit of the whole team. Punit and Pradeep work as a team,"
says Chandra. Goenka, who makes no bones about the fact that he is the
owner's son, says he is answerable only to shareholders. He is clearly
comfortable with Guha professionally, a thing that his father may not
have shared with Zee's former CEOs. (Guha and Goenka knew each other
before Guha joined Zee). So, this nextgen at Zee (everyone talks about
Goenka being Chandra's successor) is ostensibly more comfortable with
professional management than the entrepreneur.
What about the professionals? Remember Vijay Jindal, the only CEO who
stayed around for five years and brought order to the wild west that
Zee was in the early 1990s? Jindal, incidentally, was a BCCL man. Does
it say anything about Guha and Jindal's special ability to work in
owner-driven companies? Maybe it does. Maybe Guha knows where to push
and where to draw the line. And that is why he was reluctant to talk
to us or anyone. Maybe that is why the changes he has made will be
more lasting. What happens to Zee when he leaves (there are rumours
flying around already)? "The momentum won't go if I leave. I am very
focused on building systems and processes," says Guha.
If Zee grows as per schedule even after he leaves, then both Chandra
and Guha would have done their jobs. Till then, the jury is out on the
strength of the turnaround.
